Consumer Research Shows High Insurance Rates, Far-spread Quotes

The Consumer Federation of America (CFA) announced Monday that recent research looking at a 15-city sampling of quotes showed a wide range of prices from major insurers and sometimes exorbitantly high rates for the same motorist seeking minimum coverage in moderate-income areas.

The CFA says the research shows that the availability of cheap insurance is scarce, with 56 percent of quotes obtained from four major insurers coming in at more than $1,000 annually and 32 percent of quotes being more than $1,500. Also, there were four rate quotes that ran higher than $3,000, exceeding the three rate quotes that ran under than $500.

“Our research suggests that most rates charged [to] moderate-income drivers are neither fair nor affordable,” said J. Robert Hunter, director of insurance at the CFA, in a statement.

Two Drivers with Clean Records Used in Research

The CFA compiled 120 quotes from the four insurers by visiting their websites and inputting information for two theoretical motorists, both with much of the same background:

— A 27-year-old single male motorist working as a laborer with no accidents or moving violations on record in seven years driving a paid-off 2002 Honda Civic for 10,000 miles annually. The driver has a good credit rating, high school diploma, rents in a moderate-income area and has one dependent.
— A 35-year-old single female motorist working as a bank teller with no accidents or moving violations on record in 12 years driving a paid-off 2002 Honda Civic for 10,000 miles annually. The driver has a good credit rating, high school diploma, rents in a moderate-income area and has one dependent.

Through those quotes, the CFA found a huge gap between the highest and lowest rates offered by insurers.

For example, Progressive’s priciest quote to the male driver was $2,152 in Baltimore while the cheapest was $718 in Sioux Falls, Minn. State Farm’s highest quote was $2,430 in Miami while its lowest was also in Sioux Falls, at $595.

The same range could be found in a single city, according to the CFA , which found that a female Las Vegas resident used in its research would find quotes as low as $762 and as high as $3,390.

“Insurers say rates reflect risk and cost, but if this in fact is the case, why do their assessments of these factors differ so radically?” CFA Executive Director Stephen Brobeck said in a statement.

A gender breakdown of the quote samplings showed only small differences between male and female motorists. Fifty-seven percent of rates quoted to the male motorist were over $1,000, compared with 53 percent of rates quoted to the female motorist that fell in that range. However, all rates over $3,000 were quoted to the female motorist.

In a response to the CFA’s findings, the Insurance Information Institute (III) said the wide variance in quotes and rates was a byproduct of a “highly competitive marketplace.”

“The experience of insurers in these markets will differ, leading insurers to price the risk of a prospective policyholder differently,” Robert Hartwig, III president, said in a statement.

The CFA did not investigate the difference of claims between urban cities and suburban and rural neighborhoods, with the former usually racking up higher payouts, according to the III.

The cost of auto coverage hasn’t become unaffordable, according to Hartwig, with nationwide rates keeping in pace with the Consumer Price Index and rising 3 percent so far this year.

Other Cost Data Released this Year

According to data from the National Association of Insurance Commissioners released in January, the average expenditure for auto coverage nationwide remained nearly static from 2008-09, falling from $789 to $785.

An American Automobile Association (AAA) study into the costs of operating a car found that the average cost of insurance for a sedan rose 3.4 percent in the past year. Coverage costs in the previous year fell by 6.1 percent, according to the study.

About Charles Nguyen

Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.